Your phone probably rang all week on rumours. Now we’ve got the numbers.
Treasurer Jim Chalmers handed down the 2026-27 federal budget tonight, and the negative gearing and capital gains tax changes are confirmed. Most of what was leaked was on point. Some of it wasn’t. And there are a few details buried in the budget papers that deserve your attention before the calls likely start tomorrow morning.
Here’s what we know.
Let’s start with what’s not changing.
Two dates matter.
7:30 pm AEST, 12 May 2026, is the line in the sand. Properties purchased or held before this moment are grandfathered, including those for which a contract has been exchanged but not yet settled.
1 July 2027 is when the new rules come into effect. From that date, rental losses on established residential properties on those newly acquired properties can no longer be deducted against salary, business income, or any other source outside residential property. The restriction targets the type of property (established vs new build), not the number of properties in a portfolio.
The grey zone in between. Properties purchased between Budget night and 30 June 2027 sit in a grace period. They can be negatively geared during that window but not afterwards.
The Budget papers don’t specify whether “purchased” refers to the contract date or the settlement date for this window. That detail will need to come from the draft legislation.
Losses aren’t abolished. They’re quarantined.
Say your client buys an established investment property after 1 July 2027 and runs a $10,000 net rental loss in 2027–28. That $10,000 can’t offset their salary. But it can offset rental income or capital gains from residential property, including in future years.
So if the property earns $6,000 in net rental income the following year, the carried-forward loss wipes out the tax on that income. The remaining $4,000 keeps rolling forward.
The notional tax benefit doesn’t disappear. It waits.
Capital gains tax: the final model
The 50 per cent CGT discount is being replaced.
Under the old rules, if your client sold an investment property they’d held for more than a year, they knocked 50 per cent off the capital gain and paid tax on the rest.
Treasury has argued for years that this approach was arbitrary, because it didn’t account for how much of that gain was just inflation.
The replacement is cost base indexation. Instead of halving the gain, the purchase price is adjusted upward for inflation each year.
Your client only pays tax on the real gain – the part that actually made them wealthier, not the part that just kept pace with the cost of living. This is the system Australia used before 1999.
Alongside that, a 30 per cent minimum tax on real capital gains kicks in from 1 July 2027. This stops investors timing asset sales to years when their marginal rate is low – say, after retirement. Pensioners and income support recipients are exempt.
What about properties your clients already own? The gain is split at 1 July 2027. Think of it like a line drawn through the middle of the investment.
Everything the property gained in value up to 1 July 2027 is taxed under the old rules – the 50 per cent discount your clients are used to. Everything it gains after that date is taxed under the new indexation model and the 30 per cent minimum.
To draw that line, your clients will need to know what their property was worth on 1 July 2027. They can either get a formal valuation or use an ATO formula that estimates it based on average returns over the holding period. That’s a conversation for their accountant – but it’s worth flagging now, because the valuation decision matters.
One detail that flew under the radar: pre-1985 assets – which have been completely CGT-exempt since the tax was introduced – will now be subject to CGT on gains accruing after 1 July 2027. That’s a significant change for long-held family investment properties.
New builds get a choice — and they get to make it later.
Investors who buy new housing can pick either the 50 per cent CGT discount or the new indexation model with the minimum tax. The choice is made at sale, not at purchase, so investors can run both calculations and elect whichever produces the better outcome with the benefit of hindsight. This appears to be designed to keep the incentive pointed at new supply.
What the Budget papers don’t tell us yet. Whether the election is locked in once made, how it works for properties held jointly or transferred between spouses, what happens to deceased estates mid-hold, and how partial-year ownership is treated. These edge cases will need to wait for the draft legislation. If you are talking to clients on new builds in the next 12 months, you should probably flag this uncertainty.
The family home remains completely CGT-exempt. No change. Small business CGT concessions are also unchanged.
The reforms are expected to raise $3.6 billion in receipts over the forward estimates.
One more thing for clients who hold property through trusts. From 1 July 2028, a 30 per cent minimum tax applies to the taxable income of discretionary trusts, paid by the trustee. That’s a separate change from the CGT reforms, but for investors who use family trust structures for rental income or capital gains, it compounds the impact. We’ll cover that in detail in a separate piece for business owners later this week.
What changed from the weekend
Most of what was reported last week held up. But a few things landed differently:
The grandfathering is more generous than expected. It covers properties under contract but not yet settled – not just those already owned. But Treasury notes that over half of negatively geared properties are typically sold or become positively geared within four to five years, and over 75 per cent within ten years. Treasury’s point: the grandfathering has a natural expiry date, even without a sunset clause.
There’s a grace period. Properties purchased after tonight but before 30 June 2027 can be negatively geared during that period, but not in subsequent years. That gives investors and their advisers 13 months to adjust.
The CGT model is indexation, not a reduced flat rate. We flagged both options in our explainer last week. The government went with the more targeted approach. Treasury’s argument for the change: the 50 per cent discount has been overcompensating property investors in detached housing while undercompensating those in units – the type of housing the government says is most needed for supply. Treasury says indexation corrects that by tying the concession to actual inflation rather than applying a flat discount regardless of the asset.
The 30 per cent minimum tax was the surprise. This wasn’t widely flagged in the leaks. It aligns the minimum rate on capital gains with the marginal rate faced by average workers on incomes from $45,000 to $135,000.
Before tonight, Nerida Conisbee laid out what the budget needed to deliver: supply, rental stability, and downsizing reform. LJ Hooker called for action over talk. The package addresses the first two. Downsizing incentives were not included.
The number that matters most
For almost one in three investment properties sold in 2022-23 that were net negatively geared over the life of the investment, the owners received a net tax subsidy. Not a concession – a subsidy. They paid less income tax across the entire hold-and-sell cycle than they would have if they’d never bought the property at all, despite turning a nominal profit on the sale.
That’s the number Treasury chose to lead with in the budget papers. And it’s the number that explains why these changes happened.
The tax benefit from rental loss deductions exceeds the capital gains tax the investor eventually pays on sale. The combination of full deduction of losses – often at higher marginal tax rates – and a 50 per cent discount on gains at a lower rate, creates an asymmetry that, for about a third of investors, results in the government effectively subsidising the investment.
What it means for your Wednesday morning calls
The original article’s checklist still holds – but here are the confirmed updates:
Investor clients (existing)
If they already own investment property: Their negative gearing deductions are grandfathered. Nothing changes until they sell.
When they sell, the CGT calculation is now split. Gains up to 1 July 2027 get the old 50 per cent discount. Gains after that date are subject to indexation and the 30 per cent minimum tax. Your clients need to talk to their accountant about whether to get a valuation done before 1 July 2027 to lock in the split – or whether the ATO’s apportionment formula will do.
If they hold multiple properties. The existing portfolio will not change. Every investment property your client owned or had under contract before Budget night is grandfathered, regardless of how many they hold. The change kicks in on the next purchase. Any new established property acquired from 1 July 2027 onwards has its losses quarantined to residential property income, so the old strategy of using a loss-making property to shelter salary or business income no longer works for new acquisitions. New builds remain fully negatively geared.
If they’re thinking about buying another one: New builds still qualify for negative gearing and get a choice on CGT treatment. Existing homes don’t, from 1 July 2027. The grace period means purchases made before 30 June 2027 can be negatively geared in that financial year, but not after.
First home buyers
Treasury modelling says these reforms will put 75,000 additional owner-occupiers into homes over the next decade. Housing prices are expected to grow around 2 per cent less over a couple of years compared to no change – saving a buyer at the current national median about $19,000.
PropTrack data already showed home prices falling for the first time this year in April. Tonight’s changes won’t produce an overnight drop, but they shift who’s competing at auction. The government’s five per cent deposit scheme remains in play, and with less investor competition for established stock, that scheme may stretch further.
Property managers
The confirmed details raise more questions about rental supply than they answer.
Treasury’s own modelling estimates about 35,000 fewer dwellings over the next decade as a result of the tax changes – roughly a quarter of a per cent of the current stock. They say this is offset by the 65,000 new homes supported under the Local Infrastructure Fund and other supply measures.
But that offset takes years. Apartments take 33 months to build. The rental market was already at record-low vacancies before tonight. And construction costs continue to climb.
REA Group analyst Luc Redman put it bluntly: “Without state reforms to upzoning, stamp duty or planning then the new supply will be unlikely to fix Australia’s long term housing supply shortfall.”
The budget papers acknowledge the reforms will have “a small impact on rents” – an expected increase of less than $2 per week for a household paying current median rent. Whether you find that plausible depends on what you’re seeing in your market right now.
The question for your rent roll isn’t what happens this year. It’s what the pipeline looks like in 2028, when the investor shift away from established stock is entrenched but the new supply hasn’t arrived. We’ll be unpacking that in detail later this week.
Tenants
The budget papers estimate the rent impact at less than $2 per week for a household paying current median rent. The grandfathering of existing investors is designed to avoid a sudden wave of sell-offs that could disrupt the rental market.
Commonwealth Rent Assistance increases from 2023 and 2024 added more than $20 per week for a single person receiving the maximum rate – so the government’s argument is that the CRA increase more than offsets any rent impact from these reforms.
What we got right (and wrong)
Our explainer last Saturday – “What Your Investor Clients Are Googling Right Now” – called out several scenarios. Here’s how they played out:
- Grandfathering: We said existing investors would be protected. Confirmed – and more generous than expected, with the 13-month grace period on new purchases.
- CGT model: We flagged both indexation and a reduced flat rate as options. Indexation landed – the more targeted approach. The 30 per cent minimum tax was not widely expected.
- Timeline gap: We warned about the gap between cooling investor demand now and new supply arriving years later. The budget papers acknowledge a 35,000-dwelling supply impact but say it’s offset by other measures. Industry groups have already pushed back on that claim.
- Political durability: The Coalition has not committed to reversing these changes. AMPLIFY polling found 64 per cent of Australians support reform to CGT and negative gearing.
As we noted then, uncertainty has become the defining force in this market. Tonight’s announcements remove some of that uncertainty – but replace it with a new set of questions about what the market looks like in two to three years.
The bottom line
This is the biggest change to property taxation in 26 years. The actual design is more nuanced than “negative gearing is dead” – existing investors are protected, new builds are incentivised, and the CGT model has shifted from a flat discount to one tied to actual inflation.
Tomorrow morning, the agents who can calmly explain what’s actually changing – and what isn’t – will be the ones their clients remember.
Industry reactions and further details to come.
Updated 9:45pm AEST, 12 May 2026 with confirmed budget details. Read our pre-budget explainer: “What Your Investor Clients Are Googling Right Now”. All figures sourced from Budget Paper No. 1, Statement 4: Tax reform for workers, businesses and future generations, 2026-27 Budget.